Most Singaporeans know that they can use CPF to pay for their home loan, and…that’s it. But there’s much more to it than that.
1. Whether you use a bank or HDB loan affects how much CPF you can use
When you take an HDB concessionary loan, you can borrow up to 85% of the price or value of your flat (whichever is lower). The remaining 15% can be paid through CPF.
When you take a bank loan, you can only borrow up to 75% of the price or value of your house (whichever is lower). Another 20% can be paid through your CPF, while 5% must be paid in cash.
2. You can now reserve up to S$20,000 in your CPF OA, when buying a house
When you use your CPF to buy a flat, you no longer have to use everything in your Ordinary Account (OA). You can now set aside S$20,000.
Why would you do this? Well, it provides a “safety buffer” in case things go wrong. You can use this money to pay your home loan if you get retrenched, fall sick and can’t work, etc.
However, there may be good reason not to set aside the full S$20,000; just a sufficient sum to cover your loan repayments for six months should do. We explain why in this article.
3. There is a limit to how much CPF you can use for your housing
This cap is called the CPF Withdrawal Limit. It is based on the Valuation Limit (VL) of the house you buy.
(The VL is the lower of the property price or valuation — if your flat costs S$350,000, but the valuation is S$340,000, then the VL is is S$340,000).
The CPF Withdrawal Limit is capped at 120% of the VL. Any amount beyond that has to be paid for in cash.
4. You can pay your home loan with your CPF regardless of whether you buy public or private property
You can use CPF to pay the home loan for public and private housing. However, the usual restrictions (such as the withdrawal limit in point 3) still apply.
5. You can pay for stamp duties and legal fees with your CPF
When you purchase a house, you will have to pay the Buyer’s Stamp Duty (BSD). If you are buying your second or subsequent property, you will also be subject to the Additional Buyer’s Stamp Duty (ABSD). You can pay these stamp duties with your CPF, subject to some restrictions.
First, you can only use the money in your CPF Ordinary Account (CPF OA).
Next, if you’re buying a completed house (i.e. the house is not under construction), you must pay the stamp duties in cash first. You can then reclaim the amounts from your CPF account later. Contact the CPF Board for more details.
Those stamp duties are due within 14 days of completing your property purchase, in case you’re wondering.
Lastly, if you are buying your second or subsequent property, you must first set aside your Basic Retirement Sum before you can use any more CPF money. Check the CPF website for details on your Basic Retirement Sum amount, based on your age.
For example, if your Basic Retirement Sum is S$181,000, and you have S$220,000 in your CPF OA, you can only use another S$39,000 from your CPF.
Besides paying for the stamp duties, your CPF can cover legal costs such as conveyancing fees.
6. If you pay your home loan in cash instead of with CPF, you can ramp up your retirement pay-outs
You don’t have to use your CPF OA to pay for your home loan. If you’re very disciplined, you can pay for your home loan in cash, while transferring your OA monies into your CPF Special Account (CPF SA).
This will increase your retirement pay-outs, as your SA grows at 4% per annum, whereas your OA only grows at 2.5%.
Consult a qualified financial planner before deciding to take this step.
7. You have to return the CPF monies you used when you sell your house
When you sell your house, you need to return any CPF monies you used, plus any grants and the accrued interest (currently 2.5% per annum), to your CPF account.
But if you sell your house at a loss (even if it’s at market value), you don’t have to top up the difference.
Note that you can still use the CPF money for your next home.
If you want to keep the sales proceeds in cash, one way is to pay the home loan in cash instead of using your CPF (see point 6).
8. Your HDB loan interest rate is based on the CPF interest rate
The interest rate on a concessionary HDB loan is always 0.1% above the prevailing CPF interest rate. As the current rate is 2.5%, HDB loans have an interest rate of 2.6%.
This does mean that, if you get a higher interest rate from CPF, your HDB loan might become more expensive too. On the other hand, the rates have remain unchanged for a long time).
9. CPF pays for your Home Protection Scheme
The Home Protection Scheme (HPS) pays off your remaining mortgage, in the event of death, terminal illness, or permanent disability. If you pay for your HDB flat with CPF, you must be insured this scheme.
But you’re not covered by HPS if you own an Executive Condominium (EC) or private property. Private property owners can purchase a similar insurance called a Mortgage Reducing Term Insurance. It’s entirely up to them whether they want it…but they really should get it.
Any questions about purchasing a home using your CPF? Let us know in the comments section below.
If you found this article helpful, 99.co recommends What is mortgage insurance and do I really need it? and What happens to your house if you die tomorrow?
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